Part of the fun of ringing in the New Year is looking back on the achievements of the previous one. And in 2014, there were plenty of health care success stories to celebrate: major medical advances, new technologies and the Affordable Care Act’s unexpectedly good first year.
At the same time, many of the health care changes in 2014 yield potential risks for patients, employers and the nation as a whole. Consequently, the health care industry could be facing a massive financial hangover.
Let’s take a look at five health care megatrends from 2014 and consider their implications for 2015 and beyond.
Megatrend 1: Breakthrough Therapies, Gargantuan Prices
The Food and Drug Administration (FDA) approved several new drugs in 2014 for the treatment of hepatitis C, a chronic liver infection.
The biopharmaceutical company Gilead introduced two oral medications that eliminate the hepatitis C infection in around 90 percent of patients. With few major side effects, these drugs signaled a major medical advancement in 2014.
Prior to last year, hepatitis C therapies were, at best, only 70 percent effective in eliminating the infection.And the associated toxicity of past medications discouraged many patients from pursuing treatment.
But before we go patting Gilead on the back, let’s look at the economic side of these new drugs.
The first step is understanding how Gilead brought Sofosbuvir to market. Gilead didn’t develop Sofosbuvir. It purchased the rights to it from Pharmasset for $11 billion. Gilead then priced the course of therapy at $84,000 to $150,000 per patient. That’s $1,000 to $2,000 per pill and three times the price Pharmasset originally estimated.
Let’s be clear: these new drug therapies are far superior to anything available pre-2014. So, we should expect to pay more for a superior product. But with as many as 4 million hepatitis C cases in the U.S., we should also expect the treatment for each patient to be reasonably priced. Clearly, that’s not the case.
Under today’s rules, companies like Gilead can exploit their monopolistic market position and current U.S. patent laws to maximize profits. And for now, it’s patients, employers and insurers who get stuck with the bill.
The big pharma questions for 2015 and beyond: Will the new Congress intervene as pharmaceutical companies continue gouging drug prices in the future? With Express Scripts offering AbbVie’s new hepatitis C drugs as their preferred option and CVS Caremark doing the same for Gilead, how will such deals impact the availability and pricing for other drugs now coming on the market?
Megatrend 2: Expanded Coverage, Limited Access
The number of uninsured Americans fell to less than 13 percent by then end of 2014, according to Gallop. And more than half of the newly insured were covered through Medicaid, a joint federal and state program helping low-income individuals with medical costs.
In 2014, the fed offered to reimburse states the total cost of Medicaid for newly eligible enrollees in exchange for a two-year commitment. Some states signed up, raised their income thresholds and took the money. Others elected to forgo federal payments, either for political reasons or in fear of having to pay the added costs once the two-year agreement expired.
In parallel, the Affordable Care Act increased Medicaid payments for primary care doctors in 2013 and 2014. The good news: many new insured Americans enjoyed reasonable access to primary care in 2014. The bad news: rates revert to their previous (and mostly inadequate) levels in 2015.
As a result, millions of Americans who have coverage now may eventually find access to medical services limited. Already, those seeking specialty care have had mixed experiences. Many have struggled to receive specialty services outside of emergency rooms, which by law must see everyone who comes through the door.
The big coverage questions for 2015 and beyond: With more and more people enrolling in Medicaid, will access problems be compounded? As Medicare reimbursements decline in March 2015, will the same challenges occur among seniors? And will Congress implement a long-term solution for paying physicians through Medicare or will they once again pass a short-term stopgap measure?
Megatrend 3: More People Insured, More Out-Of-Pocket Expenses
For decades, health care costs have risen faster than both general inflation and the Gross Domestic Product (GDP). Employers have responded by slowly shifting health care costs to employees to control expenses.
To eliminate unnecessary use of health care services, some insurers began increasing employee copayments for office visits and emergency room trips. But as health care spending continued to soar, higher deductibles entered the picture. These deductibles require people to pay thousands in out-of-pocket costs for health care services before their insurance covers the expenses.
In 2014, this powerful cost-sharing approach made its way to the new online health care exchanges. Enrollees who signed up through exchanges could choose among four “metal” tiers: platinum, gold, silver or bronze. Each represents a different balance between monthly premiums and payment at the point-of-care (deductibles and copayments).
Bronze plans have the lowest monthly premiums but expect patients to pay on average 40 percent of their total health care costs out of pocket. This requires a large deductible. As part of the Affordable Care Act, government subsidies encouraged people to enroll at the silver level, but even at this level, the individual is expected to pay on average 30 percent of total annual health care costs out of pocket. For those with a $5000+ deductible, 80 percent will end up paying for all of their own health care expenses themselves in any given year. Those costs may be hard for many Americans to swallow.
The big health care service questions for 2015 and beyond: Will health care costs continue to rise faster than wages, thus increasing the sticker shock of health care services? As more insured individuals pay more of their own health care costs, will health insurance shift away from being comprehensive and toward covering mostly preventive care and emergencies?
Megatrend 4: Health Care Models Evolving, Costs Largely Unaffected
Policy experts are now pinpointing two factors leading to better clinical outcomes at lower prices. First: joining more primary care physicians, specialists and hospitals into integrated health care delivery organizations. Second: shifting to a financial model that rewards the value, not volume, of services provided.
Popularized by the ACA, various forms of Accountable Care Organizations (ACOs) have sprouted up, combining the two key factors that help deliver better outcomes at lower prices.
These ACOs achieved some quality improvements in 2014, led by greater collaboration among doctors and better sharing of patient information. But on the whole, they’ve yet to significantly reduce total health care costs.
As a result, some insurance companies have tried to lower costs by forming “narrow networks” of health care providers. To do so, they chose their in-network providers based, in part, on their willingness to accept major reductions in reimbursements. In response, dissatisfied enrollees – who suddenly realized their favorite doctors were no longer “in network” – filed several law suits against insurers in 2014.
The big health care model questions for 2015 and beyond: Will the newly formed ACOs achieve cost savings or will the participating doctors and hospitals simply use their expanded market dominance to raise prices? Will narrow networks be the solution to the rising cost of health care or will disgruntled enrollees revolt?
Megatrend 5: New Technologies, Untapped Potential
Technology was at the center of the health care industry in 2014. But so far, the improvements many hoped for haven’t matched the hype.
For starters, The Centers of Medicare and Medicaid Services (CMS) gave financial incentives for the “meaningful use” of electronic health record (EHR) technology to improve patient care in 2014. The EHR has the potential to provide doctors with instant access to a patient’s medical record at the time of treatment. But to harness its full power and prevent mishaps, all physicians and hospitals need to be able to access the same records for the same patients. Only a few large, integrated delivery systems have succeeded so far.
Advancements in connectivity and video technologies allow doctors to provide care and consultations remotely. When clinically appropriate, “telehealth” can reduce patient costs with added convenience. Yet under fee-for-service reimbursement system (the same that rewards the volume of services over the value), there’s little providers can gain financially from virtual visits.
Meanwhile, applications of “big data” have grown in sophistication. Some offer the potential to advance the medical understanding of diseases. But the information has been more about correlation than causation – thus limiting big data’s influence and impact so far.
Other uses have focused on “price transparency” as purchasers want to know how the dollars they contribute are being spent. Once again, the data has been voluminous but the impact on cost has been minimal. And most recently, the federal government used sources of “big data” to identify physicians who have accepted money from pharmaceutical companies and device manufacturers. But in many cases, the information has proven tough to access and largely inaccurate.
Big tech questions for 2015 and beyond: Technology has transformed most industries over the last several decades, but can health care overcome its own obstacles and use 21st century technology in ways that achieve significant improvements in quality and cost? Will big data lead to medical advancements that save lives and improve health care or will the data simply overwhelm care providers?
More Questions Than Answers Likely In 2015
The growing baby boomer population combined with expanding drug and treatment costs have the potential to bankrupt our health care system if something isn’t done.
We’ve seen a slowing of the inflation trend over the past few years in health care but not to the degree most policy experts believe is necessary. This downward cost trend could continue in a number of ways: by making patients more accountable for health care costs or by modifying delivery models or by implementing new technologies. At the same time, consumers may rebel against the limitations and restrictions of the new models and force prices upward. Or perhaps providers will consolidate further and use their new market power to raise their reimbursement rates. And who knows whether technology will live up to its promise or whether it’ll add cost without value.
We can’t be sure where health care will end up long-term but we can expect 2015 to be a pivotal year for the industry and our nation.